Bank regulators urged to review unsigned checks

WASHINGTON Mon Jun 11, 2007 8:19pm EDT

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WASHINGTON (Reuters) - U.S. lawmakers wrote to regulators on Monday expressing concern that some banks are processing unsigned checks used by fraudsters seeking to drain money from the accounts of vulnerable people.

The letter, written by House Financial Services Committee Chairman Barney Frank and fellow Massachusetts Democrat Edward Markey, highlights concerns raised in a New York Times story in May describing the use by fraudsters, posing as telemarketers, of so-called "remotely created" checks.

The practice involves a call to someone who is told he or she won a prize, but they must provide bank account information in order to claim it. Instead of depositing a prize the criminal drains the account using unsigned checks, also called "demand drafts."

"While the criminal behavior detailed in this report is shocking, it is not unfamiliar to federal regulators and law enforcement authorities," the lawmakers said in a letter to Federal Reserve Chairman Ben Bernanke.

Copies were also sent to the Federal Deposit Insurance Corporation, Office of Thrift Supervision, National Credit Union Administration and Office of the Comptroller of the Currency.

The lawmakers said they are deeply troubled by the practice, which targets the elderly, people with chronic illnesses and addicted gamblers, even after warnings by three dozen state attorneys general and the OCC of criminal behavior. They said they want answers by July 2.

A Fed spokesman said Bernanke would respond to the lawmakers. They want to know if the Fed considers the practice safe and sound banking and the extent of the fraud, according to the letter.

Jessica Schafer, spokeswoman for Markey, said the lawmakers want answers before any determination on legislation is made.

Last week Markey, a senior member of the House Energy and Commerce Committee, urged the Federal Trade Commission to launch a formal investigation into whether a data broker, InfoUSA, was abetting fraud by selling lists of millions of individuals.

InfoUSA Chief Executive Vinod Gupta said his company does not sell any such list as mentioned by the New York Times.

In response to a letter Markey sent on May 21, the FTC said from 2003 to 2006 there were 135 federal court cases involving telecommunications fraud that resulted in $370 million in compensation.

The FTC's head also said agency staff had contacted federal banking regulators to discuss the practice.

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